Russian regions are buckling under financial pressure, Ukraine's foreign intelligence says
The budget crisis in Russia's regions made itself felt at the start of 2026 in the form of widespread delays to salary payments in the public sector.
Source: Foreign Intelligence Service of Ukraine (FISU)
Details: One of the clearest examples is the Republic of Khakassia in southern Siberia, where workers in education, healthcare and the emergency services have not been paid.
Quote from the FISU: "In late December 2025, 30 schools and nurseries had their accounts frozen due to debts. The head of the republic has publicly acknowledged that the pay problem remains unresolved.
The financial collapse has systemic roots. Falling prices for coal, oil and metals have dramatically reduced regional revenues."
More details: The profitability of export-oriented sectors such as metals, coal mining, oil refining and chemicals is being eroded by weaker external demand.
Further pressure has come from lower receipts from small and medium-sized businesses, rising costs linked to wage indexation and social payments, and the effective closure of the debt market amid high interest rates.
The FISU said the crisis in Khakassia is being exacerbated by the region's reliance on the coal industry, which previously accounted for a large share of its tax base. Over the last two years, the regional budget has missed out on more than US$1.146 billion.
The authorities have switched to manual control mode – redistributing funds, making payments in part, imposing delays for certain categories and splitting payments into instalments – in order to contain social discontent rather than solve the problem.
The republic's budget deficit for 2025 is estimated at about US$61.2 million, and it's forecast to rise to US$90.4 million in 2026.
Khakassia is only part of the bigger picture, the FISU says, adding that similar imbalances are already forming in at least 15 of the Russian Federation's regions.
In Kemerovo Oblast, another coal-producing region in Siberia, about 75% of companies in the sector are operating at a loss and coal revenues could fall by nearly US$509 million in 2026.
The FISU reports that the budget crisis in Khakassia is indicative of the structural depletion of regional finances in Russia, particularly in commodities-dependent regions.
Quote: "Even if the Kremlin attempts to extinguish the problem temporarily through targeted subsidies and personnel changes, that won't change the reality: the tax base is shrinking and the scope for manual budget management has been pretty much exhausted."
Background:
- The FISU reported earlier that sanctions, the loss of foreign markets and worsening global conditions have exposed the structural weakness of Russia's regional budgets, which are no longer able to meet basic obligations. The situation is most severe in traditionally depressed regions, including the Republic of Kalmykia and Pskov Oblast.
- Water tariffs have doubled in Russian-occupied Ukrainian cities despite ongoing disruptions to the water and heating supply. Two-tier increases in utility payments have also been reported within Russia itself.
- The Kremlin plans to raise taxes and cut social benefits, and senators and governors will bear the brunt of the criticism.
- The FISU reported at the end of 2025 that Russia's economy is showing signs of systemic strain, and this is reflected in a steep rise in complaints from its citizens about labour rights violations.
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